Pharmacologic inhibition of the proteasome causes dramatic increases in bone formation in rodent bones in vitro and in vivo (Garrett.et al., 2003). Our preliminary data suggests that this effect is mediated (at least in major part) by increased expression of the bone growth regulatory factor bone morphogenetic protein-2 (BMP-2). Our recent Preliminary Data suggest that the Gli family of transcriptional regulators is responsible for the effects on BMP-2. It is the purpose of this application to (1) determine the molecular mechanisms by which inhibition of the ubiquitin-proteasome pathway increases osteoblast differentiation and bone formation, (2) determine the role of increased BMP-2 expression in these effects in vivo, and (3) clarify the role of the Gli family of transcription factors in the increases in BMP-2 expression. Our most recent Preliminary Data suggest that in bone cells in vitro, Gli2 (and to a lesser extent, Gli1 and 3) stimulates BMP-2 transcription, while a truncated form of Gli3 produced in the proteasome is a powerful repressor (Gli2 is degraded completely by the proteasome, but Gli1 is not processed by the proteasome). Our hypothesis therefore is that BMP-2 transcription is normally regulated by Gli2 (which stimulates it) and truncated Gli3 (which opposes the stimulatory effects of Gli2). Proteasome inhibitors enhance accumulation of Gli2 and impair formation of truncated Gli3. These inhibitors thereby selectively stimulate BMP-2 transcription and bone formation primarily because of the effects of Gli2 on the BMP-2 promoter when unopposed by truncated Gli3. In this application, our goal is to test this hypothesis by a series of in vivo and in vitro biological experiments designed to determine the precise roles of these individual Gli family members on BMP-2 transcription and bone formation, as well as their relationship to proteasome inhibition. We also plan to characterize the role of the E3 ubiquitin ligase responsible for targeting Gli3 to the proteasome, namely (-TrCP, in bone formation by the use of transgenic mice overexpressing wild-type and dominant-negative mutants of this enzyme. These experiments should clarify our understanding of the regulatory effects of the ubiquitin-proteasome pathway inhibition on bone formation, and identify important potential molecular targets for regulation of osteoblast differentiation and bone formation.